Depreciation & Actual Cash Value (ACV) Calculation Rules - All 50 States + DC
Purpose: Reference table for depreciation rules, particularly labor depreciation, in calculating Actual Cash Value (ACV) for insurance claims across all U.S. jurisdictions.
Last Updated: August 2026 (verified against statutes, bulletins and reported decisions)
Sources: State statutes, regulations, insurance department bulletins, reported decisions (linked per row)
Overview
Actual Cash Value (ACV) is typically calculated as:
ACV = Replacement Cost Value (RCV) - Depreciation
The key dispute across jurisdictions is whether labor costs can be depreciated along with materials. This significantly impacts claim payouts, especially for older properties.
Material Depreciation: Universally accepted—a 15-year-old roof has less value than a new one.
Labor Depreciation: Highly disputed—labor to install a roof doesn't "wear out" like shingles do.
Verification: Every row below was checked against the cited statute, regulation, bulletin or decision. Rows whose Source is marked "(not confirmed from text)" rest on secondary reporting or citations that could not be fetched; Montana and South Dakota, previously unverified, were re-checked in August 2026 (Montana: no authority located; South Dakota: Division Bulletin 03-04 and McKenzie). Position labels reflect the leading authority; most holdings are policy-language dependent (an express definition of ACV or depreciation that includes labor may change the result).
State Rules on Labor Depreciation
| State | Labor Depreciation | Authority | Notes | Source |
|---|---|---|---|---|
| Alabama | PROHIBITED where ACV undefined (federal district court); allowed only if policy expressly provides | Arnold v. State Farm Fire & Cas. Co., 268 F. Supp. 3d 1297, 1309 (S.D. Ala. 2017); Ala. Admin. Code r. 482-1-125-.09(2) | Court held undefined 'ACV' does not unambiguously include depreciation of labor, so insurer could not depreciate labor; class later certified (Doc. 178, Nov. 23, 2020). Regulation defines ACV as replacement cost less depreciation but is silent on labor. No Alabama Supreme Court ruling | cases.justia.com |
| Alaska | UNSETTLED | Bulletin B 24-07 (May 7, 2024), withdrawn by Bulletin B 25-03 (Jan. 23, 2025, eff. Jan. 24, 2025) | B 24-07 barred labor depreciation in ACV definitions for policies new/renewing on or after 1/1/2025; B 25-03 withdrew it. No statute or Alaska case on point; 3 AAC 26.090 governs ACV generally | commerce.alaska.gov |
| Arizona | PROHIBITED (where policy does not define ACV/depreciation) | Walker v. Auto-Owners Ins. Co., No. CV-21-0236-CQ (Ariz. Aug. 2022) | Certified question: insurer may not depreciate labor when policy leaves ACV/depreciation undefined; broad evidence rule not applied to that policy but not barred for others | law.justia.com |
| Arkansas | ALLOWED with policy notice (statute); otherwise prohibited under Adams | Ark. Code Ann. § 23-88-106 (Acts 2017, No. 279); Adams v. Cameron Mut. Ins. Co., 2013 Ark. 475 | Adams: labor may not be depreciated when ACV undefined. Act 279 of 2017: policy may allow 'expense depreciation' (incl. labor) if it gives Commissioner-approved notice and insurer gives written calculation explanation | law.justia.com |
| California | PROHIBITED | Cal. Code Regs. tit. 10, § 2695.9(f)(1) | Labor to repair/rebuild/replace is not a component of physical depreciation and shall not be depreciated, except intrinsic labor in manufactured materials; operative 8/30/2006 | law.cornell.edu |
| Colorado | ALLOWED (where policy defines ACV as repair/replace cost subject to depreciation) | Basham v. United Servs. Auto. Ass'n, No. 16-cv-03057-RBJ, 2017 WL 3217768 (D. Colo. July 28, 2017) | Judgment on the pleadings for insurer: both materials and labor components of repair cost are subject to depreciation; court disagreed with Adams (Ark.) and Redcorn dissents. Federal trial-court decision only; no Colorado appellate ruling, statute, or DOI bulletin | cases.justia.com |
| Connecticut | UNSETTLED | Conn. Gen. Stat. § 38a-307 (standard fire policy: ACV = cost to repair/replace with like kind and quality minus reasonable depreciation; 'depreciation' = decrease in value of real property over time due to wear and tear) | No appellate ruling on labor; statutory definition ties depreciation to wear and tear, which is argued to exclude labor. Grawe v. Trumbull Ins. Co., No. 3:23-cv-00160 (D. Conn.) pending | cga.ct.gov (not confirmed from text) |
| Delaware | UNSETTLED | None on labor; Metro. Mut. Fire Ins. Co. v. Carmen Holding Co., 220 A.2d 778 (Del. 1966) (fair market value approach to ACV) | No Delaware statute, regulation, bulletin or decision addressing labor depreciation located | mwl-law.com (not confirmed from text) |
| District of Columbia | PROHIBITED | DISB Bulletin 25-IB-001-08/12 (Aug. 11, 2025) | Depreciation of labor, taxes, fees, O&P deemed unfair claims practice under D.C. Code § 31-2231.17(b)(6); DISB will not approve forms allowing labor depreciation | disb.dc.gov |
| Florida | ALLOWED (dicta; no direct holding) | Trinidad v. Fla. Peninsula Ins. Co., 121 So. 3d 433 (Fla. 2013) (approving Goff v. State Farm Fla. Ins. Co., 999 So. 2d 684 (Fla. 2d DCA 2008)) | Trinidad states that under an ACV policy an insurer may depreciate a portion of O&P 'just as the insurer can depreciate a portion of other costs'; Goff held O&P (like all other repair costs) included but depreciable under ACV. No Florida statute or bulletin bars labor depreciation | cases.justia.com (not confirmed from text) |
| Georgia | UNSETTLED | None on labor; Am. Cas. Co. v. Parks-Chambers, Inc., 142 S.E.2d 275 (Ga. App. 1965) (ACV = fair market value at time of loss) | No Georgia statute, regulation, bulletin or decision addressing labor depreciation located | mwl-law.com (not confirmed from text) |
| Hawaii | UNSETTLED | None; Haw. Rev. Stat. § 431:10-210 (NY 1943 standard fire policy minimum) | No Hawaii authority on labor depreciation located | mwl-law.com (not confirmed from text) |
| Idaho | UNSETTLED | None on labor; broad evidence rule per Boise Ass'n of Credit Men v. U.S. Fire Ins. Co., 256 P. 523 (Idaho 1927) | No Idaho authority on labor depreciation located | mwl-law.com (not confirmed from text) |
| Illinois | PROHIBITED (where policy does not define ACV) | Sproull v. State Farm Fire & Cas. Co., 2021 IL 126446 | Under 50 Ill. Adm. Code 919.80(d)(8)(A) ACV = replacement cost less depreciation; only structure/materials depreciable, not intangible labor; policy ambiguous, construed against insurer | law.justia.com |
| Indiana | ALLOWED (inferred; no express holding on labor) | Travelers Indem. Co. v. Armstrong, 442 N.E.2d 349 (Ind. 1982) (broad evidence rule) | Armstrong adopted the broad evidence rule for undefined ACV and reinstated an award applying a flat 25% depreciation to the whole repair estimate; opinion never discusses labor separately. Thorne v. Member Select, 882 F.3d 642 (7th Cir. 2018) reaffirms broad evidence rule but does not address labor | law.justia.com (not confirmed from text) |
| Iowa | UNSETTLED | Iowa Admin. Code 191-15.44(2) (ACV = replacement cost less depreciation, or market value) | Rule defines ACV and requires depreciation worksheet on request but is silent on labor; no Iowa appellate ruling located | legis.iowa.gov (not confirmed from text) |
| Kansas | ALLOWED (where policy defines ACV with depreciation) | Graves v. Am. Family Mut. Ins. Co., No. 15-3187, 686 F. App'x 536 (10th Cir. Apr. 21, 2017) (unpublished), aff'g 2015 WL 4478468 (D. Kan. 2015) | Policy defined ACV as replacement cost 'less allowance for physical deterioration and depreciation, including obsolescence'; court declined to split materials from labor, following Redcorn (Okla. 2002). No Kansas appellate decision; unpublished federal authority only | cases.justia.com |
| Kentucky | PROHIBITED (unless policy clearly permits) | Hicks v. State Farm Fire & Cas. Co., 751 F. App'x 703 (6th Cir. 2018); 965 F.3d 452 (6th Cir. 2020) (class cert. affirmed); KY DOI Advisory Opinion 2020-01 | 6th Cir.: where policy leaves ACV undefined, labor may not be depreciated under KY law; DOI opinion says clear, unambiguous policy language permitting labor depreciation is not prohibited by 806 KAR 12:095 | ca5.uscourts.gov |
| Louisiana | UNSETTLED | — (ACV = replacement cost less depreciation, Hackman v. EMC Ins. Co., 984 So. 2d 139 (La. Ct. App. 2008)) | No statute, LDI directive, or appellate ruling found squarely on labor depreciation | propertyinsurancecoveragelaw.com (not confirmed from text) |
| Maine | UNSETTLED | — | No authority found | — |
| Maryland | UNSETTLED | — | Glasner v. Am. Economy Ins. Co., 2024 WL 1018448 (D. Mass. 2024) lists Maryland among states whose courts have not conclusively addressed labor depreciation | propertyinsurancecoveragelaw.com (not confirmed from text) |
| Massachusetts | UNSETTLED | — | Glasner v. Am. Economy Ins. Co. (D. Mass. Mar. 8, 2024) surveyed other states' law in a class action; no definitive Massachusetts holding | propertyinsurancecoveragelaw.com (not confirmed from text) |
| Michigan | ALLOWED only via standalone optional endorsement | DIFS Bulletin 2024-26-INS (Nov. 8, 2024), superseding Bulletin 2024-18-INS (July 3, 2024) | Personal lines homeowners/dwelling: labor, taxes, fees, O&P may be depreciated only through optional standalone endorsement offered with commensurate premium reduction, not via policy definitions | michigan.gov |
| Minnesota | CASE-BY-CASE | Wilcox v. State Farm Fire & Cas. Co., 874 N.W.2d 780 (Minn. Feb. 10, 2016) | Certified question: when policy does not define ACV, trier of fact (appraisal panel/jury) may consider embedded-labor depreciation under broad evidence rule; it is one factor depending on facts | static.case.law |
| Mississippi | PROHIBITED (when ACV undefined in policy) | Mitchell v. State Farm Fire & Cas. Co., 954 F.3d 700 (5th Cir. Mar. 30, 2020); Miss. Code Ann. § 83-54-5(a) | 5th Cir.: undefined ACV is ambiguous; construed for insured, only materials depreciate. Insurer may expressly define ACV to include labor depreciation (State Farm did from Sept. 2016) | ca5.uscourts.gov |
| Missouri | PROHIBITED (absent express policy language) | Franklin v. Lexington Ins. Co., No. WD84816 (Mo. Ct. App. June 28, 2022); Labrier v. State Farm, 147 F. Supp. 3d 839 (W.D. Mo. 2015) | Mo. App.: policyholder would not reasonably expect ACV reduced by labor depreciation; insurer could have drafted policy to permit. Fire losses use fair-market-value ACV (statute) | propertyinsurancecoveragelaw.com (not confirmed from text) |
| Montana | Undetermined | — (no statute, CSI advisory memorandum or decision) | CSI advisory-memo index (Aug 2026) lists nothing on ACV or depreciation; case-law full-text search for "labor depreciation" returns no Montana state or D. Mont. decision | csimt.gov |
| Nebraska | ALLOWED | Henn v. American Family Mut. Ins. Co., 295 Neb. 859, 894 N.W.2d 179 (Jan. 17, 2017) | Neb. Sup. Ct. (certified question): insurer may depreciate labor in ACV even where policy defines neither ACV nor depreciation; ACV = depreciated value of property immediately before loss | propertyinsurancecoveragelaw.com |
| Nevada | UNSETTLED | — | No authority found | — |
| New Hampshire | UNSETTLED | — | No authority found | — |
| New Jersey | UNSETTLED | — | No authority found | — |
| New Mexico | UNSETTLED | — | No authority found | — |
| New York | UNSETTLED | — | No statute, DFS guidance, or appellate ruling on labor depreciation found | — |
| North Carolina | ALLOWED | Accardi v. Hartford Underwriters Ins. Co., 373 N.C. 292, 838 S.E.2d 454 (Feb. 28, 2020) | N.C. Sup. Ct. affirmed Business Court: insurers may depreciate labor in ACV; property valued as a whole | courtlistener.com |
| North Dakota | UNSETTLED | — | No ND appellate ruling or DOI bulletin on labor depreciation; policy language controls | — |
| Ohio | PROHIBITED (when policy ambiguous) | Perry v. Allstate Indem. Co., 953 F.3d 417 (6th Cir. Mar. 18, 2020); Cranfield v. State Farm, 798 F. App'x 929 (6th Cir. 2020) | 6th Cir. applying Ohio law: undefined 'depreciation' is ambiguous, construed against insurer; insurer may not depreciate labor absent clear policy language. No Ohio Supreme Court ruling; Ohio Adm. Code 3901-1-54(I)(2) defines ACV as replacement cost less depreciation. | opn.ca6.uscourts.gov |
| Oklahoma | ALLOWED | Redcorn v. State Farm Fire & Cas. Co., 2002 OK 15, 55 P.3d 1017 (Okla. 2002) | Okla. Supreme Court: roof is product of materials and labor; depreciation may be applied to the whole (labor included) in computing ACV under replacement-cost-less-depreciation | oscn.net (not confirmed from text) |
| Oregon | UNSETTLED | — | No Oregon appellate ruling or DFR bulletin on labor depreciation | — |
| Pennsylvania | UNSETTLED | — | No Pa. appellate ruling on labor depreciation; Kurach v. Truck Ins. Exch., 235 A.3d 1179 (Pa. 2020) addressed GCOP withholding on ACV, not labor depreciation | — |
| Rhode Island | UNSETTLED | — | No RI ruling or DBR bulletin on labor depreciation | — |
| South Carolina | ALLOWED | Butler v. Travelers Home & Marine Ins. Co., 433 S.C. 306, 858 S.E.2d 407 (S.C. May 12, 2021) (Op. No. 28026) | Certified question answered 'yes': insurer may depreciate embedded labor when policy silent on method; labor and materials valued as a unit | sccourts.org |
| South Dakota | Undetermined for property (no appellate ruling); Division position against withholding labor (auto) | S.D. Div. of Ins. Bulletin 03-04 (Dec. 11, 2003); McKenzie v. Farmers Ins. Exch., CIV 17-4011 (D.S.D. May 12, 2017) | Bulletin 03-04 (unrepaired auto hail): "labor costs are owed whether the vehicle is repaired or not" (supersedes Bulletin 91-3 50%-labor formula). McKenzie (homeowners hail; default-judgment findings) found bad faith in withholding recoverable depreciation and noted the Division "has already told insurance companies that they cannot withhold or depreciate labor costs." No S.D. Supreme Court decision on labor depreciation in property ACV | dlr.sd.gov |
| Tennessee | PROHIBITED (when policy ambiguous) | Lammert v. Auto-Owners (Mut.) Ins. Co., 572 S.W.3d 170 (Tenn. Apr. 15, 2019) | Tenn. Supreme Court (certified question): policies defining ACV as replacement cost less depreciation are ambiguous as to labor; construed for insured, labor may not be depreciated. No post-Lammert statute located; insurers responded with express policy language. | cases.justia.com |
| Texas | ALLOWED | Tolar v. Allstate Tex. Lloyd's Co., 772 F. Supp. 2d 825 (N.D. Tex. 2011) | Federal district court applying Texas law upheld depreciation of labor in ACV; no Texas Supreme Court ruling | — |
| Utah | UNSETTLED | — | No Utah appellate ruling or DOI bulletin on labor depreciation | — |
| Vermont | PROHIBITED | DFR Insurance Bulletin No. 184 (May 12, 2015); 8 V.S.A. § 4724(9)(F) | Bulletin 'Property Loss Claims: No Labor Depreciation': depreciating labor of any kind is prohibited by § 4724(9)(F) and is an unfair claim settlement practice under § 4723 when a business practice | dfr.vermont.gov |
| Virginia | UNSETTLED | — | No Virginia appellate ruling or Bureau of Insurance guidance on labor depreciation | — |
| Washington | ALLOWED (federal trial court) | Lains v. Am. Family Mut. Ins. Co., No. C14-1982, 2016 WL 4533075 (W.D. Wash. Aug. 30, 2016) | W.D. Wash. dismissed challenge, allowing labor depreciation in ACV under WA law; no Washington appellate or OIC ruling, so treat as persuasive only | — |
| West Virginia | UNSETTLED | — | No WV appellate ruling or OIC bulletin on labor depreciation | — |
| Wisconsin | UNSETTLED | — | No Wisconsin appellate ruling or OCI guidance on labor depreciation | — |
| Wyoming | UNSETTLED | — | No Wyoming ruling or DOI bulletin on labor depreciation | — |
Summary by Category
States That PROHIBIT Labor Depreciation (11)
| State | Authority | Qualifier |
|---|---|---|
| Alabama | Arnold v. State Farm Fire & Cas. Co., 268 F. Supp. 3d 1297, 1309 (S.D. Ala. 2017); Ala. Admin. Code r. 482-1-125-.09(2) | where ACV undefined (federal district court); allowed only if policy expressly provides |
| Arizona | Walker v. Auto-Owners Ins. Co., No. CV-21-0236-CQ (Ariz. Aug. 2022) | (where policy does not define ACV/depreciation) |
| California | Cal. Code Regs. tit. 10, § 2695.9(f)(1) | — |
| District of Columbia | DISB Bulletin 25-IB-001-08/12 (Aug. 11, 2025) | — |
| Illinois | Sproull v. State Farm Fire & Cas. Co., 2021 IL 126446 | (where policy does not define ACV) |
| Kentucky | Hicks v. State Farm Fire & Cas. Co., 751 F. App'x 703 (6th Cir. 2018); 965 F.3d 452 (6th Cir. 2020) (class cert. affirmed); KY DOI Advisory Opinion 2020-01 | (unless policy clearly permits) |
| Mississippi | Mitchell v. State Farm Fire & Cas. Co., 954 F.3d 700 (5th Cir. Mar. 30, 2020); Miss. Code Ann. § 83-54-5(a) | (when ACV undefined in policy) |
| Missouri | Franklin v. Lexington Ins. Co., No. WD84816 (Mo. Ct. App. June 28, 2022); Labrier v. State Farm, 147 F. Supp. 3d 839 (W.D. Mo. 2015) | (absent express policy language) |
| Ohio | Perry v. Allstate Indem. Co., 953 F.3d 417 (6th Cir. Mar. 18, 2020); Cranfield v. State Farm, 798 F. App'x 929 (6th Cir. 2020) | (when policy ambiguous) |
| Tennessee | Lammert v. Auto-Owners (Mut.) Ins. Co., 572 S.W.3d 170 (Tenn. Apr. 15, 2019) | (when policy ambiguous) |
| Vermont | DFR Insurance Bulletin No. 184 (May 12, 2015); 8 V.S.A. § 4724(9)(F) | — |
States That ALLOW Labor Depreciation (12)
| State | Authority | Qualifier |
|---|---|---|
| Arkansas | Ark. Code Ann. § 23-88-106 (Acts 2017, No. 279); Adams v. Cameron Mut. Ins. Co., 2013 Ark. 475 | with policy notice (statute); otherwise prohibited under Adams |
| Colorado | Basham v. United Servs. Auto. Ass'n, No. 16-cv-03057-RBJ, 2017 WL 3217768 (D. Colo. July 28, 2017) | (where policy defines ACV as repair/replace cost subject to depreciation) |
| Florida | Trinidad v. Fla. Peninsula Ins. Co., 121 So. 3d 433 (Fla. 2013) (approving Goff v. State Farm Fla. Ins. Co., 999 So. 2d 684 (Fla. 2d DCA 2008)) | (dicta; no direct holding) |
| Indiana | Travelers Indem. Co. v. Armstrong, 442 N.E.2d 349 (Ind. 1982) (broad evidence rule) | (inferred; no express holding on labor) |
| Kansas | Graves v. Am. Family Mut. Ins. Co., No. 15-3187, 686 F. App'x 536 (10th Cir. Apr. 21, 2017) (unpublished), aff'g 2015 WL 4478468 (D. Kan. 2015) | (where policy defines ACV with depreciation) |
| Michigan | DIFS Bulletin 2024-26-INS (Nov. 8, 2024), superseding Bulletin 2024-18-INS (July 3, 2024) | only via standalone optional endorsement |
| Nebraska | Henn v. American Family Mut. Ins. Co., 295 Neb. 859, 894 N.W.2d 179 (Jan. 17, 2017) | — |
| North Carolina | Accardi v. Hartford Underwriters Ins. Co., 373 N.C. 292, 838 S.E.2d 454 (Feb. 28, 2020) | — |
| Oklahoma | Redcorn v. State Farm Fire & Cas. Co., 2002 OK 15, 55 P.3d 1017 (Okla. 2002) | — |
| South Carolina | Butler v. Travelers Home & Marine Ins. Co., 433 S.C. 306, 858 S.E.2d 407 (S.C. May 12, 2021) (Op. No. 28026) | — |
| Texas | Tolar v. Allstate Tex. Lloyd's Co., 772 F. Supp. 2d 825 (N.D. Tex. 2011) | — |
| Washington | Lains v. Am. Family Mut. Ins. Co., No. C14-1982, 2016 WL 4533075 (W.D. Wash. Aug. 30, 2016) | (federal trial court) |
Case-by-Case (1)
| State | Authority | Qualifier |
|---|---|---|
| Minnesota | Wilcox v. State Farm Fire & Cas. Co., 874 N.W.2d 780 (Minn. Feb. 10, 2016) | — |
UNSETTLED (27)
No statute, bulletin or appellate decision squarely on labor depreciation located: Alaska, Connecticut, Delaware, Georgia, Hawaii, Idaho, Iowa, Louisiana, Maine, Maryland, Massachusetts, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Oregon, Pennsylvania, Rhode Island, South Dakota (property; see Bulletin 03-04 for auto), Utah, Virginia, West Virginia, Wisconsin, Wyoming.
What Can Be Depreciated (Where Labor Depreciation Prohibited)
| Category | Depreciable? | Notes |
|---|---|---|
| Materials | Yes | Shingles, siding, drywall, etc. |
| Labor | No (in prohibited states) | Installation, removal, repair labor; CA excepts labor intrinsic to manufactured materials |
| Taxes | No (DC) | DISB Bulletin 25-IB-001-08/12 |
| Fees | No (DC) | DISB Bulletin 25-IB-001-08/12 |
| Overhead & Profit | No (DC); FL dicta allows depreciating O&P under ACV (Trinidad) | DC bulletin; MI permits only via endorsement |
ACV Calculation Methods
Replacement Cost Minus Depreciation (Most Common)
ACV = RCV - Depreciation
Codified or applied in, e.g., CA (10 CCR § 2695.9), CT (§ 38a-307), IA (191-15.44(2)), IL (50 Ill. Adm. Code 919.80), OH (OAC 3901-1-54(I)(2)), AL (r. 482-1-125-.09(2)).
Broad Evidence Rule (Some States)
Courts consider all relevant evidence to determine ACV, including:
- Replacement cost minus depreciation
- Fair market value
- Original cost minus depreciation
- Expert opinions
Applied in IN (Armstrong, 1982), MN (Wilcox, 2016), ID (Boise Ass'n of Credit Men, 1927).
Market Value Approach
ACV = Fair market value of the property immediately before the loss (e.g., DE Carmen Holding, 1966; GA Parks-Chambers, 1965; MO fire losses by statute).
Class Action Litigation Trend
Labor-depreciation disputes are largely being decided in class actions, often on certified questions from federal courts. Key developments supported by the rows above:
- Arkansas 2013/2017: Adams v. Cameron Mut. barred labor depreciation under undefined ACV; Act 279 of 2017 (§ 23-88-106) then permitted it with approved policy notice
- Alabama 2017/2020: Arnold v. State Farm held labor not depreciable under undefined ACV; class certified Nov. 2020
- Kentucky 2018/2020: Hicks v. State Farm (6th Cir.) — labor not depreciable when ACV undefined; class certification affirmed 2020
- Tennessee 2019: Lammert — replacement-cost-less-depreciation policies ambiguous as to labor; construed for insured
- Mississippi / Ohio 2020: Mitchell (5th Cir.) and Perry (6th Cir.) — labor not depreciable absent express policy language
- Missouri 2022: Franklin v. Lexington (Mo. App.) upheld policyholder win
- Michigan 2024: DIFS Bulletin 2024-26-INS allows labor depreciation only via standalone optional endorsement
- Alaska 2024-2025: Bulletin B 24-07 barred labor depreciation; withdrawn by B 25-03 (eff. Jan. 24, 2025)
- DC 2025: DISB Bulletin 25-IB-001-08/12 (Aug. 11, 2025) declares labor depreciation an unfair claims practice
- Pending: Grawe v. Trumbull (D. Conn.); Glasner v. Am. Economy (D. Mass. 2024) surveyed unsettled states
Key Policy Language Triggers
Courts focus on whether the policy defines "actual cash value" and "depreciation":
| Policy Language | Effect |
|---|---|
| ACV / depreciation undefined | Labor depreciation prohibited in AZ, IL, AL, KY, MS, MO, OH, TN (ambiguity construed for insured); allowed in NE, OK, SC, NC |
| ACV defined as replacement cost less depreciation | Ambiguous as to labor in TN (Lammert), IL; allowed in CO (Basham), KS (Graves) |
| ACV expressly includes labor depreciation | Enforceable where permitted (KY Adv. Op. 2020-01; MS § 83-54-5; AR with notice; MI only via endorsement) |
| "Physical depreciation" only | Labor depreciation prohibited by regulation in CA |
Best Practices for Claims Professionals
- Know Your State: Check current law before calculating ACV
- Review Policy Language: Does policy define ACV or depreciation?
- Document Methodology: Clearly show how depreciation was calculated
- Separate Line Items: Show materials vs. labor depreciation separately
- Arkansas Policies: Verify Commissioner-approved notice language is in policy and provide written calculation explanation
- Michigan Policies: Verify optional endorsement exists
- Watch for Updates: This is a rapidly evolving area of law
Impact on Claim Calculations
Example: 15-Year-Old Roof Replacement
| Component | RCV | Depreciation | ACV (Labor Allowed) | ACV (Labor Prohibited) |
|---|---|---|---|---|
| Materials | $8,000 | 50% ($4,000) | $4,000 | $4,000 |
| Labor | $7,000 | 50% ($3,500) | $3,500 | $7,000 |
| Total | $15,000 | — | $7,500 | $11,000 |
Difference: $3,500 (47% more in labor-prohibition states)
Important Notes
- Montana: no statute, CSI advisory memorandum or decision on labor depreciation located (Aug 2026)
- South Dakota: Bulletin 03-04 (auto hail) says labor costs are owed whether or not repaired; McKenzie (D.S.D. 2017) applied the Division position to a homeowners hail claim; no S.D. Supreme Court ruling
- Federal decisions (AL, CO, KS, KY, MS, OH, TX, WA) predict state law and bind no state court
- Alaska: no operative guidance after B 25-03 withdrew B 24-07; 3 AAC 26.090 governs ACV generally
Key Takeaways
- 11 jurisdictions prohibit labor depreciation (most only where the policy leaves ACV/depreciation undefined): Alabama, Arizona, California, District of Columbia, Illinois, Kentucky, Mississippi, Missouri, Ohio, Tennessee, Vermont
- 12 jurisdictions allow it (several conditionally or on federal trial-court authority only): Arkansas, Colorado, Florida, Indiana, Kansas, Michigan, Nebraska, North Carolina, Oklahoma, South Carolina, Texas, Washington
- Case-by-case: Minnesota
- 27 jurisdictions unsettled: policy language controls
- Policy Language Matters: express definitions including labor are the insurer's main response to adverse rulings
- Ongoing Litigation: class actions and certified questions continue to drive the law
This table is for reference purposes only and does not constitute legal advice. State laws change rapidly in this area; verify current requirements before relying on this information.